The Gravity Free Economy

The Wall Street Reports that Congress is outraged Apple Computer is paying less taxes than they could.  Not that they should, but they could.   Here’s a quote.

One of the units, Apple Operations International, hasn’t filed a corporate tax return anywhere in the past five years, the Senate panel found. The unit is the main holding company for Apple’s business outside of the Americas. 

“Despite reporting net income of $30 billion over the four-year period 2009 to 2012, Apple Operations International paid no corporate income taxes to any national government during that period,” the report found.

 Apple told the panel that it doesn’t believe Apple Operations International “qualifies as a tax resident of any other country under the applicable local laws.”

 In 2011, another Ireland-based Apple unit, Apple Sales International, which sells iPhones, iPads MacBooks and other products to overseas distributors, recorded $22 billion in pretax earnings but paid just $10 million in taxes, investigators found. That works out to a rate of about .05%. 

A third Apple subsidiary, Apple Operations Europe, also maintains its corporate profits aren’t taxable by any country, according to the investigation.

What this means is some very smart people at Apple constructed a matrix of tax laws both here and in foreign countries and then put their foot down where they couldn’t be touched.  Kind of like kids will run down a sidewalk and jump over all the lines – “step on a crack and break your mother’s back” anybody remember that?  So why the indignation, after all Apple didn’t write the tax laws, stupid people greedy people in Washington, London, Paris and Berlin did.

And maybe the fact that they’re bright enough not to get nailed by the suck your blood types in D.C., is a good part of the reason they’re as successful as they are.

But Apple super-smart tax avoidance is actually small potatoes in the scheme of things.  The underground economy, or untaxable cash or kind economy in the United States is usually estimated at a trillion dollars a year.  Those with some interest might study this issue because I ran the numbers and got something like four trillion.  In other words the underground economy in the United States or as I call it The Gravity Free Economy (have to trademark that name) may be as large as the total economy of Japan.

The way we’re encouraged to look at this activity is that these people are stealing from the rest of us.   If they only paid their taxes the thinking goes the rest of us would have  to pay less and/or we wouldn’t have a Federal deficit.

But is that true?  Let’s say this four trillion dollars worth of business suddenly kicked in say $500 billion a year in taxes.  Would the government use that windfall to reduce taxes or the deficit?  If you answer yes, not only are you smoking dope, but some very bad dope.  What government would do is spend more and while it’s a subject for another time, above a certain very bare minimum every dollar the government spends distorts and damages the economy.  Which is why, with our enormous government spending, we are no longer twice or three times as rich as our closest competitor.  So withholding taxes, or simply avoiding them as in the case of Apple is a very good thing.  Makes our economy stronger not weaker.

Indeed the Gravity Free Economy is probably the reason the United States hasn’t completely tanked yet despite the best Obama can do.  Because bear in mind what these people are doing is creating wealth, not destroying it like Washington does.

Think about it.